S TRATEGY “MBS” – M ARKET R EPORT

PERFORMANCE REPORT ON MBS SYSTEM – JUNE 2022

Research Project: MBS System Historical Performance

Prepared by: Pedro B.

Statement of Purpose

This report has the intention of showing the statistics and thought process of building this system, which shall be names as MBS,
that stands for “Momentum Based System”. With this report I hope to make clear the historical performance of the system found,
not only on the main asset within the sector, Bitcoin, but also on other secondary assets within the same market.

The goal of finding this system is twofold. One is to provide, in an automated fashion, signals to people interested, and for me to
show the performance of a systematic approach to trading. I have other systems deployed but they are only viable for more positive
regimes, which implicates longer periods of no trading. Longer periods of near zero capital exposure are not wrong, however the
purpose of this system is to mitigate those times with some short-term based trading. This is the first shorter-term based system I
am building for the Crypto market, based on the one-hour timeframe, where we use targets and stops for decreased periods of
capital exposure.

I’ve allocated a certain percentage of my own capital to this system to demonstrate my confidence in the results produced. Even
though my confidence is on the historical data of the system, past performance is not indicative of future returns, and we must
always keep that in mind. Even when using all the tools available to avoid most of the fallacies of systematic trading, there’s always
the possibility of our system not working.

System Finding Methodology

Finding a viable trading system can be quite challenging and time consuming, most especially when using individual thesis or coding
them with no regards of its viability in the live markets beforehand. To be efficient and systematize the process of strategy selection
I’ve built a custom machine learning based algorithm to search for systems in an automated way. I’ve used the most common
indicators and price patterns as criteria for the algorithm and used the most common trading philosophies such as trend following,
mean reversion, momentum, etc.

To avoid over optimization issues, I’ve used a 40/60 split between training data and test data, where the least amount of data was
used to train the system on, and the system had to meet the minimum requirements out of sample in most of the unseen data. This
way we can more confidently move forward knowing that over optimization most likely has been avoided. To add to this, after all
the training and testing is done, I’ve added an alternative data source that offers data on the main asset, Bitcoin, since 2011. I’ve
used that data for the last trial before launching.

After the data is split into the ratio I’ve mentioned above, the algorithm picks the criteria we’ve given it and applies all sorts of
combinations to find the best systems for that period ranked by their fitness function. The fitness function used for this system was
returns. Later, I want to build a more dynamic fitness function considering different metrics such as trade count, average returns,
returns, win ratio, and any other metric, but that will be a project for later systems.

After the algorithm finds the top 100 best solutions for this given data set, I went ahead and chose the best system based on
multiple of metrics such as the described above. One of the most important metrics for me is the number of trades produced by the
system, since the more trades we get, the more robust the system should be over time.
Overall Research Findings

In the picture above is the merged returns of the three assets I’ve randomly chose for this system to trade on, Bitcoin, Ethereum
and BNB. On later research I will work on finding a better asset selection methodology, but as of now, we will focus on trading the
top market cap coins in the market.

Here are a few key statistics:

 This system produced a total of 2213 trades with a win rate of 62.67%.
 The system returned 383k$
 76% of months were positive
 The maximum drawdown, with an exposure of 1.5% risk per trade across 3 assets was of 39%.
 All these returns are non-compounded returns.
 For the same period Bitcoin produced a drawdown over 80% and another recent one over 70%. This system beats that
with quite aggressive risk metrics.

Conclusion

I’ve tried to keep this report very simple and short for everybody to follow the most important points of this research. Systematic
trading is not about being super complex and mathematical, it is about understanding the market and then applying technology to
automate our work. Even though I’ve kept this report simple, a lot of work went into build the system finding algorithm and later on
deploying this system, by no means I want to also pass the image that all of this is simple and that it takes no work. As with
everything good in life, it takes work, but the most important thing to keep in mind, is that your approach to the markets is more
important than any mathematical complexity.

With the strategy above I will be trying to prove over the coming months and years that we can build profitable models with very
small amount of data and extract returns from the markets consistently as retail traders. Until the strategy breaks, I’ll be updating
everyone on twitter and on discord on the system performance and sharing signals every time there is a trade.